The custodians of monetary order

With the stock markets reeling under new shock waves every week, or almost every week, since the summer of 1997, everyone is again looking to the heads of the central banks who are perceived, rightly or wrongly, as the ultimate custodians of monetary order, even of global prosperity.

In 1929 the decisions taken by the directors of the United States’ Federal Reserve contributed to the scale of the crash that was followed by the worst depression in modern economic history. Re-reading J. K. Galbraith (1), it seems by no means absurd to find similarities with the present situation, despite the differences in social and economic structures, the distance in time and the apparently incontrovertible advances in the science of economics. Incapable of intervening - before the crash - to check speculation on the stock markets, more concerned to ward off the imaginary threat of inflation than to attack real and present deflation with an expansionist monetary policy, the central banks acted as a lightning conductor transmitting the loss of financial confidence to other sectors of the economy.

Must we therefore conclude that, where speculation is concerned, the passage of time dims our memories and, by the same token, condemns us to repeat our mistakes? We may at least wonder whether the wisdom and experience of the directors of the central banks will really be enough to stop the global economy straying from the narrow path of balanced growth they are supposed to keep it to? With runaway speculation and increasing talk of imminent worldwide recession, with recession already well advanced and incipient famine in some countries, can we really look to them for a dynamic new monetary and financial policy capable of dealing with these problems?

Who are these lofty beings who are called upon to represent the public and deemed fit to be their (...)